WACHEMO UNIVERSITY

COLLEGE OF BUSINESS AND ECONOMICS

DEPARTMENT OF ACCOUNTING AND FINANCE
GRADUATE STUDY PROGRAM
INDIVIDUAL ASSIGNMENT FOR COURSE: RESEARCH METHODOLOGY IN ACCOUNTING AND
FINANCE

SUBMETTED BY: TEMESGEN ABONE : ID --------------1500544

INSTRUCTOR: DR. KASSAHUN WOLDE

November, 2023

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Contents
ACKNOWLEDGEMENT.................................................................................................................................................................................................. 3
Title: What drives Economic Growth? Evidence from Ethiopian Economy................................................................................................................4
Statement of the problem........................................................................................................................................................................................... 4
General Objective of the study.................................................................................................................................................................................... 4
Specific Objectives of the study................................................................................................................................................................................... 4
Hypotheses.................................................................................................................................................................................................................. 5
i) Model summary report......................................................................................................................................................................................... 5
ii) Coefficients (the regression output)........................................................................................................................................................................ 6
b) Interpret coefficients of each variable....................................................................................................................................................................9
The t-statistic and p-value, discuss the level of significances of the independent variables......................................................................................10
The null hypothesis test of each variable is rejected or failed to be rejected at 5% significance level......................................................................11
Discussion of the R2 and fitness of model..................................................................................................................................................................11
Correlation matrix...................................................................................................................................................................................................... 12
Regarding direction correlation............................................................................................................................................................................. 12
Foreign direct investment, net inflows (% of GDP)............................................................................................................................................12
Domestic credit provided by financial sector (% of GDP)...................................................................................................................................13
Exports of goods and services (% of GDP)..........................................................................................................................................................13
Domestic credit to private sector (% of GDP).....................................................................................................................................................13
Regarding magnitude correlation.......................................................................................................................................................................... 14
Reference :-............................................................................................................................................................................................................... 14

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ACKNOWLEDGEMENT
First of all I would like to thank my God for his invaluable support in my every aspect of life.

I would also like to extend a special thank to my instructor Doctor KassahunWolde for his great commitment and support over the
study of Research Methodology in Accounting and Finance

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Title: What drives Economic Growth? Evidence from Ethiopian Economy

Statement of the problem

Under suitable circumstances well stated problem is very important that would lead to better solution. The whole world is conducting
continuous investigations and research studies to sustain economic growth. Africa as a continent suffering from fluctuation of
economic growth due to various factors east Africa is also a victim this problem, especially Ethiopia The research problem addressed
in this study is to investigate the key drivers of economic growth in the Ethiopian economy. The study aims to analyze and provide
evidence on the factors that significantly contribute to economic growth in Ethiopia, taking into consideration the country's unique
socio-economic context. The research intends to identify and assess the various determinants, such broad money, domestic credit
provided by financial sectors, domestic credit to private sectors, exports of goods and services, foreign direct investment, and other
related factors that have a substantial impact on economic growth in Ethiopia. By examining these drivers, the study seeks to provide
valuable insights and evidence-based recommendations for policymakers, researchers, and stakeholders to promote sustainable and
inclusive economic growth in Ethiopia.

General Objective of the study

The general objective of this study is to determine the key variables that have a significant impact on economic growth in Ethiopia.

Specific Objectives of the study

The specific objectives of this study are:

1) To test the null hypothesis that there is no significant relationship between GDP and each independent variable.
2) To determine the magnitude and direction of the relationship between GDP and each independent variable.
3) To analyze the relationship between GDP and independent variables such as foreign direct investment, Export of goods and
services, Domestic credit to private sector, broad money.

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Hypotheses
a) Null hypothesis (H0): There is no significant relationship between GDP and foreign direct investment
b) Null hypotheses (H0): There is no significant relationship between GDP and Export of goods and services
c) Null hypotheses (H0): There is no significant relationship between GDP and Domestic credit to private sector
d) Null hypothesis (H0): There is no significant relationship between GDP and broad money
e) Null hypotheses (H0): There is no significant relationship between GDP and Domestic credit provided by financial sector

i) Model summary report

i) ModelSummary

R Adjusted R Std. Error of the

Model R Square Square Estimate
a
1 .982 .965 .947 960121428.403877
50
a. Predictors: (Constant), Foreign direct investment, net inflows (% of GDP), Domestic credit
provided by financial sector (% of GDP), Exports of goods and services (% of GDP), Domestic
credit to private sector (% of GDP), Broad money (% of GDP)
b. Dependent Variable: GDP (constant 2015 US$)
Dependent Variable: GDP (constant 2015 US$)

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 ii) Coefficients (the regression output)

Mode INDEPENDENT VARIABLES Collinearity Statistics

Tolerance VIF
1 Broad money (% of GDP) .115 8.668
.216 4.627
2 Domestic credit provided by financial sector (% of GDP)

Domestic credit to private sector (% of GDP) .220 4.536

3

Exports of goods and services (% of GDP) .249 4.015

4

Foreign direct investment, net inflows (% of GDP) .258 3.875

5

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 Coefficients
Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) - 3713253292.973 -.664 .518
2464685547.240
Broad money (% of GDP) 542930104.434 102135671.129 .818 5.316 .000
a. Dependent Variable: GDP (constant 2015 US$)

Coefficientsa
Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) -962083336.994 4991080567.353 -.193 .850
Domestic credit provided by 435806405.707 119664516.735 .697 3.642 .003
financial sector (% of GDP)
a. Dependent Variable: GDP (constant 2015 US$)

Coefficientsa

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 Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 10293103920.59 1371041910.534 7.508 .000
5
Domestic credit to private 514336174.774 94151903.702 .825 5.463 .000
sector (% of GDP)
a. Dependent Variable: GDP (constant 2015 US$)

Coefficientsa
Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta t Sig.
1 (Constant) 8770215622.595 582391559.398 15.059 .000
Exports of goods and 7.949 .508 .973 15.661 .000
services (% of GDP)
a. Dependent Variable: GDP (constant 2015 US$)

Coefficientsa
Standardized
Unstandardized Coefficients Coefficients
Model B Std. Error Beta T Sig.
1 (Constant) 13930550126.01 1194198032.215 11.665 .000
4

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 Foreign direct investment, 1443970974.898 419034219.252 .677 3.446 .004
net inflows (% of GDP)
a. Dependent Variable: GDP (constant 2015 US$)

b) Interpret coefficients of each variable

-Foreign direct investment: For a 1% increase in foreign direct investment, GDP growth expected to increase by 0.677% keeping
other variables constant
-Export of goods and service: For 1% increase inexport of goods and service, GDP growth expected to increase by 0.973%
keeping other variables constant
-Domestic credit to private sector: For a 1% increase in, domestic credit to private sector, GDP growth expected to increase by
0.825% keeping other variables constant

-Domestic credit provided by financial sector: For a 1% increase in domestic credit provided by financial sector, GDP growth
expected to increase by 0.697% keeping other variables constant

-Broad money: For a 1% increase in broad money, GDP growth expected to increase by 0.818% keeping other variables constant

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The t-statistic and p-value, discuss the level of significances of the independent variables

Serial Variables
no t-calculated p-value
1 Foreign direct investment 3.446 0.004

2 Export of goods and service 15.661 0.000

3 Domestic credit to private sector 5.463 0.000

4 Domestic credit provided by financial sector 3.642 0.003

5 Broad money 5.316 0.000

a. Dependent Variable: GDP (constant 2015 US$)

It is known that the t-statistic and p-value for each variable is used to determine the level of significance. If the p-value is less
than 0.05, then the variable is considered as statistically significant. From the table given above, all the given independent
variables are statistically significant; since the p-value for each variable is less than 0.05 as it is indicated on the table. When
we come to t-statistic, we can compare t-calculated against the t-tabulated. If the calculated t-value exceeds the tabulated value,
it indicates that the difference between the sample mean and the population mean is statistically significant. In other words, it
suggests that the observed difference is unlikely to have occurred by chance alone,leading to the rejection of the null

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 hypothesis. The calculated t-values for all variables above are less than the t-tabulated value; Due to these reasons, the
observed difference is unlikely to have occurred by chance alone, leading to the rejection of null hypothesis.

The null hypothesis test of each variable is rejected or failed to be rejected at 5% significance level

We see that the level of significance for foreign direct investment,(p-value) is 0.004 which shows the null hypothesis is rejected at
5% significance level.For Export of goods and services p-value is 0.000 which also indicates the null hypothesis is rejected at 5%
significance level since that value is less than 5% .The same is true for domestic credit to private sector i.e. the null hypothesis is
rejected as the p-value 0.000 is also less than 5% more over domestic credit provided by financial sector has the p-value of 0.003
which is less than 5% indicating the null hypothesis is rejected. Finally, broad money has p-value of 0.000 which also shows the null
hypothesis is rejected at 5% significance level as it is less than 5%.
Therefore, we can conclude that the level of significance for all independent variables is less than 5% showing that the null hypothesis
is rejected.

Discussion of the R2 and fitness of model

The R-squared value of 0.965 indicates that 96.5% of the variation in GDP can be explained by foreign direct investment,
domestic credit to private sector, domestic credit provided by financial sector, exports of goods and services and broad money.
The adjusted R squared value takes into account the number of independent variables and penalizes for over fitting. In this case
the adjusted R squared value is 0.947, which suggests a good fit for the model.

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 Foreign direct Domestic credit Exports of
investment, net provided by goods and Domestic credit Broad
inflows (% of financial sector services (% of to private sector money (% of
Model GDP) (% of GDP) GDP) (% of GDP) GDP)
Foreign direct investment, net inflows (% of 1.000 .418 .276 -.527 -.658
GDP)
Domestic credit provided by financial sector .418 1.000 .338 -.582 -.700
Correlations (% of GDP)
Exports of goods and services (% of GDP) .276 .338 1.000 -.553 -.606
Domestic credit to private sector (% of GDP) -.527 -.582 -.553 1.000 .410

Broad money (% of GDP) -.658 -.700 -.606 .410 1.000

Correlation matrix

a. Dependent Variable: GDP (constant 2015 US$)

From the above table we can easily understand that the following two issues regarding correlation

Regarding direction correlation

Foreign direct investment, net inflows (% of GDP)
Has negative relationship with

 Domestic credit to private sector (% of GDP and

 Broad money (% of GDP)

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Has positive relationship with the rest of all

Domestic credit provided by financial sector (% of GDP)

Has negative relationship with

 Domestic credit to private sector (% of GDP and

 Broad money (% of GDP)

Has positive relationship with the rest of all

Exports of goods and services (% of GDP)

Has negative relationship with

 Domestic credit to private sector (% of GDP and

 Broad money (% of GDP)

Has positive relationship with the rest of all

Domestic credit to private sector (% of GDP)

Has negative relationship with

 Domestic credit provided by financial sector (% of GDP and

 Exports of goods and services (% of GDP)
 Foreign direct investment, net inflows (% of GDP)

Has positive relationship with the rest of all

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Regarding magnitude correlation

The strength of the linear relationship between each pair of variables is also measured by a correlation matrix. The correlation ranges
from -1 to 1, where,-1 indicates a perfect negative correlation, and 1 indicates a perfect positive correlation, and 0 indicates no
correlation. The correlation between foreign direct investment and domestic credit provided by financial sector( 0.418) is positive and
weak and The correlation between foreign direct investment and Exports of goods and services(0.276) is positive and weak and The
correlation between foreign direct investment and Domestic credit to private sector(-0.527) is negative and strong and The
correlation between foreign direct investment and broad money(-0.658) is negative and strong. The correlation between domestic
credit provided by financial sector and Exports of goods and services (0.338) is positive and weak and The correlation between
domestic credit provided by financial sector and Domestic credit to private sector (-582) negative and strong. Again the correlation

Between domestic credit provided by financial sector and broad money (-0.7) is negative and strong. The correlation between Exports
of goods and services and Domestic credit to private sector (-0.553) is negative and strong and again The correlation between Exports
of goods and services and broad money (-0.606) is negative and strong. Finally, the correlation between Domestic credit to private
sector and broad money (0.41) is positive and weak.

Reference :-

World Bank database /world development indicators.

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